Economy of Afghanistan

The economy of Afghanistan has improved significantly since 2002 due to the infusion of multi-billion dollars in international assistance and investments,^[3] as well as remittances from Afghan expats.^[4] It is also due to dramatic improvements in agricultural production and the end of a four-year drought in most of the country. However, Afghanistan still remains one of the poorest and least developed countries in the world that is highly dependent on foreign aid. As of 2010, the nation's GDP is $29.81 billion and the GDP per capita is $900.^[1]

About 35 percent of its population is unemployed and live below the poverty line, suffering from shortages of housing, clean drinking water, electricity and employment. The Karzai administration along with international donors have remained committed to improving access to these basic necessities by prioritizing infrastructure development, education, housing development, jobs programs, medical care, and economic reform. The replacement of the opium trade, which probably makes up about one-third of the country's GDP, is one of several potential spoilers for the economy over the long term.

Economic history

Historically, there has been a dearth of information and reliable statistics about Afghanistan's economy.

The 1979 Soviet invasion and ensuing civil war destroyed much of the country's limited infrastructure, and disrupted normal patterns of economic activity. Eventually, Afghanistan went from a traditional economy to a centrally planned economy up until 2002 when it was replaced by a free market economy. Gross domestic product has fallen substantially since the 1980s due to disruption of trade and transport as well as loss of labor and capital. Continuing internal strife severely hampered domestic efforts to rebuild the nation or provide ways for the international community to help.

According to the International Monetary Fund, the Afghan economy grew 20% in the fiscal year ending in March 2004, after expanding 30% in the previous 12 months. The growth is attributed to international aid and to the end of droughts. An estimated $4.4 billion of aid entered the nation from 2002 to 2004. A GDP of $4 billion in fiscal year 2003 was recalculated by the IMF to $6.1 billion, after adding proceeds from opium products. Mean graduate pay was $0.56 per manhour in 2010.

Agriculture and livestock

The Afghan economy has always been agricultural, despite the fact that only 12% of its total land is arable and less than 6% currently is cultivated Agriculture production is constrained by an almost total dependence on erratic winter snows and spring rains for water. As of 2007, the country's fruit and nut exports were at $113 million per year but could grow to more than $800 million per year in 10 years given the proper investment.^[5] Afghanistan is known for producing some of the finest fruits, especially pomegranates, apricots, grapes, melons, and mullberry. Several provinces in the north of the country (i.e. Badghis and Samangan) are famous for pistachio cultivation but the area currently lacks proper marketing and processing plants. It is claimed that some Indian companies buy Afghan pistachios for a very low price, process them in India and sell to western countries as Indian products. However, the Afghan government is planning to build storage facilities for pistachios since receiving bumper crops in 2010.^[6]

Wheat and cereal production is Afghanistan's traditional agricultural mainstay. The overall agricultural production dramatically declined following four years of drought as well as the sustained fighting and instability in rural areas. Soviet efforts to disrupt production in resistance-dominated areas also contributed to this decline, as did the disruption to trince 2002, more than 4 million refugees returned to Afghanistan. Many of these former refugees are now involved in the farming industry. Some studies indicate that agricultural production and livestock numbers may only be sufficient to feed about half of the country's population. Shortages are exacerbated by the country's limited transportation network, which is currently being rebuilt. A report by the Food and Agriculture Organization (FAO) states that Afghanistan was nearing self-sufficiency in grain production.^[7]

The availability of land suitable for grazing has traditionally made animal husbandry an important part of the economy. There are two main types of animal husbandry: sedentary, practiced by farmers who raise both animals and crops; and nomadic, practiced by animal herders known as Kuchis. Natural pastures cover some 7,500,000 acres (30,400 km²) but are being overgrazed. The northern regions around Mazar-i-Sharif and Maymanah were the home range for about six million karakul sheep in the late 1990s. Most flocks move to the highlands in the summer to pastures in the north. Oxen are the primary draft power and farmers often share animals for plowing. Poultry are traditionally kept in many houses, mostly in rural households.

Much of Afghanistan's livestock was removed from the country by early waves of refugees who fled to neighboring Pakistan and Iran. In 2001, the livestock population in Afghanistan had declined by about 40% since 1998. In 2002, this figure was estimated to have declined further to 60%. An FAO survey done in the northern regions in spring 2002 showed that in four provinces (Balkh, Juzjan, Sar-e Pol, and Faryab), there was a loss of about 84% of cattle from 1997 to 2002 and around 80% of sheep and goat. The great majority of Afghans traditionally raise sheep instead of goats because goat meat is not much popular within Afghanistan. After 200, the Afghan ministry of agriculture and livestock and USAID have been helping to regrow the number of livestocks throughout the country. This is done by providing Afghan villagers training and animals to start with.^[8]

Fishing

The nation has plenty of water reserves and suitable climate for fish farming. Fishing takes place in the lakes and rivers, such as in Sarobi and Mahipar area. Fish constitute a smaller part of the Afghan diet today because fish farmers are unable to produce enough fish to keep up with the demands of customers. Using explosives for fishing, called dynamite fishing, became popular in the 1980s and is still practiced by some even though it is illegal today.^[9] The annual catch was about 900 tons in 2003. Most fish and seafood is imported from neighboring Pakistan, Iran, the United Arab Emirates and other countries.^[10] In recent years, USAID has helped many Afghans in establishing fish farms across the country.^[11] There are about 300 fish farms throughout the country and the largest one is at the Qargha, which supplies fish eggs to the other ones.^[9]

Forestry

Afghanistan's timber has been greatly depleted, and since the mid-1980s, only about 3% of the land area has been forested, mainly in the east. Significant stands of trees have been destroyed by the ravages of the war. Exploitation has been hampered by lack of power and access roads. Moreover, the distribution of the forest is uneven, and most of the remaining woodland is presently found only in mountainous regions in the southeast and south. The natural forests in Afghanistan are mainly of two types: dense forests of oak, walnut, and other species of nuts that grow in the southeast, and on the northern and northeastern slopes of the Sulaiman ranges; and sparsely distributed short trees and shrubs on all other slopes of the Hindu Kush. The dense forests of the southeast cover only 2.7% of the country. Roundwood production in 2003 was 3,148,000 cubic metres, with 44% used for fuel. The destruction of the forests to create agricultural land, logging, forest fires, plant diseases, and insect pests are all causes of the reduction in forest coverage. Illegal logging and clear-cutting by timber smugglers have exacerbated this destructive process.

Trade and industry

Further information: Transport in Afghanistan and Mining in Afghanistan

The Doost Marble Factory in Herat. Current marble exports are estimated at $15 million per year. With improved extraction, processing, infrastructure, and investment, the industry has the potential to grow into a $450 million per year business.^[12]

Afghanistan-Tajikistan bridge after completion in 2007 is one of several bridges used for trade between Afghanistan and Central Asia.

The current trade between Afghanistan and other countries is at US$5 billion a year. In 1996, legal exports (excluding opium) were estimated at $80 million and imports estimated at $150 million per year. Since the collapse of the Taliban government in 2001, new trade relations are emerging with the United States, Pakistan, Iran, Turkmenistan, the EU, Japan, Uzbekistan, India and other countries. Trade between Afghanistan and the U.S. is beginning to grow at a fast pace, reaching up to approximately $500 million per year.^[13] The Afghan handwooven rugs are one of the most popular products exported from the country. Other products include hand crafted antique replicas, precious and semi-precious stones as well as leather and furs.

Afghanistan is endowed with a wealth of natural resources, including extensive deposits of natural gas, petroleum, coal, marble, gold, copper, chromite, talc, barites, sulfur, lead, zinc, iron ore, salt, precious and semi-precious stones, and many other materials. In 2006, a U.S. Geological Survey estimated that Afghanistan has as much as 36 trillion cubic feet (1.0×10^¹² m³) of natural gas, 3.6 billion barrels (570×10^⁶ m³) of oil and condensate reserves.^[14] According to a 2007 assessment, Afghanistan has significant amounts of undiscovered non-fuel mineral resources.^[15] Geologists also found indications of abundant deposits of colored stones and gemstones, including emerald, ruby, sapphire, garnet, lapis, kunzite, spinel, tourmaline and peridot.^[16] In 2010, U.S. Pentagon officials along with American geologists have revealed the discovery of nearly $1 trillion in untapped mineral deposits in Afghanistan.^[17] Plans are being made by the Afghan government to begin extracting these but with the Taliban insurgency and the corruption there is no telling what will happen.

Afghanistan could become the "Saudi Arabia of lithium".^[19] Some believe, including Afghan President Hamid Karzai, that the untapped minerals are worth at least $3 trillion.^[20][21][22] Afghanistan has signed a copper deal with China (Metallurgical Corp. of China Ltd.) in 2008, which is to a large scale project that involves the investment of $2.8 billion dollars by China and an annual income of about $400 million dollars to the Afghan government. The country's Ainak copper mine, located in Logar province, is one of the biggest in the world and is expected to provide jobs to 20,000 Afghans. It is estimated to hold at least 11 million tonnes or 33 billion US dollars worth of copper.^[23][24] Experts believe that the production of copper could begin within two to three years and the iron ore in five to seven years as of 2010.^[25] The nation's other recently announced treasure is the Hajigak iron ore mine, located 130 miles west of Kabul and is believed to hold an estimated 1.8 billion to 2 billion metric tons of the mineral used to make steel. Companies from India, Turkey, China, Iran and others have shown interest in participating in the Hajigak iron ore tender.^[26]

Afghanistan's important resource in the past has been natural gas, which was first tapped in 1967. During the 1980s, gas sales accounted for $300 million a year in export revenues (56% of the total). Ninety percent of these exports went to the Soviet Union to pay for imports and debts. However, during the withdrawal of Soviet troops in 1989, Afghanistan's natural gas fields were capped. Gas production has dropped from a high of 8.2 million cubic metres (2.9 × 10⁸ cu ft) per day in the 1980s to a low of about 600 thousand cubic meters (2.2 × 10⁷ cu ft) in 2001. After the formation of the new Karzai administration, production of natural gas has been restored again.^[27] A locally owned company, Azizi Hotak General Trading Group, is currently the main supplier of diesel fuel, gasoline, jet fuel and LPG in Afghanistan.^[28]

Trade in goods smuggled into Pakistan once constituted a major source of revenue for Afghanistan. Many of the goods that were smuggled into Pakistan have originally entered Afghanistan from Pakistan, where they fell under the Afghan Trade and Transit Agreement (ATTA). This permitted goods bound for Afghanistan to transit through Pakistan free of duty. This resulted in considerable problems for the Pakistani government, particularly its customs bureau who realized that many of the items being resold on the black market in Pakistan were the very same items being allowed duty free exemption from Pakistani ports (mainly Karachi) on their way to Afghanistan. When Pakistan clamped down in 2003 on the types of goods permitted duty-free transit, and introducing stringent measures and labels to prevent such practices, re-routing of goods through Iran from the Persian Gulf increased significantly. The pre-2003 smuggling trade provided undocumented jobs to tens of thousands of Afghans and Pakistanis, but also helped fuel the black economy, often intertwined with the drug cartels, of both countries. Afghanistan and Pakistan recently signed into law a new Afghan-Pak Trade and Transit Agreement (APTTA), which allows their shipping trucks to transit goods within both nations. This revised US-sponsored APTTA agreement also allows Afghan trucks to transport exports to India via Pakistan through the Wagah crossing point.^[29][30] According to Afghanistan's Chamber of Commerce and Industries deputy head, Khan Jan Alokozai, about 500 shipping containers of trade goods enter Afghanistan via Pakistan on a daily basis.^[31]

Economic development and recovery

Further information: Communications in Afghanistan

New commercial buildings such as this one in Kabul are constructed across the country to help modernize the financial sector

Afghanistan embarked on a modest economic development program in the 1930s. The government founded banks; introduced paper money; established a university; expanded primary, secondary, and technical schools; and sent students abroad for education. In 1956, the government of Afghanistan promulgated the first in a long series of ambitious development plans. By the late 1970s, these had achieved only mixed results due to flaws in the planning process as well as inadequate funding and a shortage of the skilled managers and technicians needed for implementation.

The nation's banking system has improved recently with over fourteen different banks in operation. They include Da Afghanistan Bank, Afghanistan International Bank, Azizi Bank, Kabul Bank, Pashtany Bank, Standard Chartered Bank, First Micro Finance Bank, and others. In 2010, Kabul Bank became in financial crisis after depositors had withdrawn $180 million.^[32] A new law on private investment provides three to seven-year tax holidays to eligible companies and a four-year exemption from exports tariffs and duties. As a result of the new banks in the country, Afghan expats are sending more money back home to their family or relatives. According to a UN report in 2007, Afghanistan has received over $3.3 billion from its expatriate community in 2006. UN officials familiar with the issue said remittances to Afghanistan could have been more if the banking regulations are more convenient.^[4]

The $35 billion New Kabul master plan, in which the city is expected to expand north towards Bagram Air Base.

Kabul symbolizes the spirits of all Afghans and international cooperation, sets at the heart of this highly resourceful region, with great potential to turn into a business hub. After 2002, the new geo-political dynamics and its subsequent business opportunities, rapid urban population growth and emergence of high unemployment, triggered the planning of urban extension towards the immediate north of Kabul, in the form of a new city.

In 2006, President Hamid Karzai established and Independent Board for the Development of Kabul New City. The Board brings together key stakeholders, including relevant government agencies, as well as representation from private sector and urban specialists and economists, with cooperation from the government of Japan and French private sector, the board prepared a master plan for the city in the context of Greater Kabul. The master plan and its implementation strategy for 2025 were endorsed by the Afghan Cabinet in early 2009. The initiative turned into one of the biggest commercially viable national development project of the country, expected to be led by the private sector.^[33]

In the meantime, a number of high rise buildings are being planned and constructed across Kabul, as part of the attempt to modernize the city and create jobs.^[34] An initial concept design called the City of Light Development, envisioned by Hisham N. Ashkouri, for the development and the implementation of a privately based investment enterprise has been proposed for a multi-function commercial, historic and cultural development within the limits of the Old City of Kabul, along the southern side of the Kabul River and along Jade Meywand Avenue. It is expected to revitalize some of the most commercial and historic districts in the City of Kabul, which will contain numerous historic mosques and shrines as well as viable commercial activities among and within war-damaged buildings. Also incorporated in the design is a new complex for a new Afghan National Museum. The design has garnered interest from President Hamid Karzai, and has support from Ambassador Said Tayeb Jawad, who signed a Memo of Understanding regarding the development.^[35]

Since its inception in 1991, the UN Office for the Coordination of Humanitarian Affairs (OCHA) to Afghanistan has channelled more than $1 billion in multilateral assistance to Afghan refugees and vulnerable persons inside Afghanistan. The United States, the European Union (EU), and Japan are the leading contributors to this relief effort. One of its key tasks is to eliminate from priority areas—such as villages, arable fields, and roads—some of the 5 to 7 million land mines and 750,000 pieces of unexploded ordnance, sown mainly during the Soviet occupation, which continue to litter the Afghan landscape. Afghanistan is still a heavily mined country; mine-related injuries number about 60 per-month. Without successful mine clearance, refugee repatriation, political stability, and economic reconstruction will be severely constrained.

Since 2001, the international community has pledged $25 billion in help but has delivered only $15 billion as of 2008. The reconstruction of Afghanistan requires a sustained and substantial commitment of aid.^[36] Too much money meant for Afghanistan aid is wasted, with a vast amount spent on foreign workers' high salaries, security and living arrangements.^[37]

National accounts

The majority of the following information is taken from, or adapted from The World Factbook

GDP: purchasing power parity - $29.81 billion (2010 est.), with an exchange rate at $16.63 billion (2010 est.) GDP - real growth rate:

·          22.5% (2009 est.)

GDP - per capita: purchasing power parity - $900 (2010 est.)^[1]

GDP - composition by sector:

·          agriculture: 31%

·          industry: 26%

·          services: 43% (2008 est.)

note: data excludes opium production

Population below poverty line:

·          36% (2008/2009)

Household income or consumption by percentage share:

·          lowest 10%: NA%

·          highest 10%: NA%

Inflation rate (consumer prices): 13% (2007)
country comparison to the world: 183

Labor force: 15 million (2004 est.)
country comparison to the world: 40

Labor force - by occupation: agriculture 78.6%, industry 5.7%, services 15.7% (2009 est.)

Unemployment rate: 35% (2009)
country comparison to the world: 181

Budget:

·          revenues: $890 million

·          expenditures: $2.7 billion

Industries: small-scale production of textiles, soap, furniture, shoes, fertilizer, apparel, food-products, non-alcoholic beverages, mineral water, cement; handwoven carpets; natural gas, coal, copper

Electricity - production: 839 million kWh (2007)
country comparison to the world: 149

Electricity - production by source:

·          fossil fuel: 36.3%

·          hydro: 63.7%

·          nuclear: 0%

·          other: 0% (2001)

Electricity - consumption: 1.418 billion kWh (2007)
country comparison to the world: 137

Electricity - exports: 0 kWh (2007)

Electricity - imports: 608 million kWh (2007)

Oil - production: 0 barrels per day (0 m³/d) (2003 est.)
country comparison to the world: 210

Oil - consumption: 5,036 barrels per day (800.7 m³/d) (2006)
country comparison to the world: 165

Oil - proved reserves: 1,600,000,000 barrels (250,000,000 m³) (2006 est.)^[14]

Natural gas - production: 220 million m³ (2001 est.)

Natural gas - consumption: 220 million m³ (2001 est.)

Natural gas - proved reserves: 15.7 trillion cubic feet (2006 est.)^[14]

Agriculture - products: opium poppies, wheat, fruits, nuts, karakul pelts

Exports: $327 million; note - not including illicit exports or reexports (2007)
country comparison to the world: 175

Exports - commodities: opium, fruits and nuts, handwoven carpets, wool, cotton, hides and pelts, precious and semi-precious stones

Exports - partners: United States 26.47%, India 23.09%, Pakistan 17.36%, Tajikistan 12.51% (2009)

Imports: $4.85 billion (2007)

Imports - commodities: capital goods, food, textiles and petroleum products

Imports - partners: Pakistan 26.78%, United States 24.81%, India 5.15%, Germany 5.06%. Russia 4.04% (2009)

Debt - external: $2.7 billion (2008)

Current account balance: -$67 million (2007)
country comparison to the world: 79

Currency: Afghani (AFN)

Exchange rates: Afghanis per one US dollar ($1) - 50.25 (2008), 50 (2007), 46 (2006), 47.7 (2005), 48 (2004)

Fiscal year: 21 March - 20 March